The dollar inched higher on Thursday, with expectations of another Federal Reserve rate hike this year kept alive by a policy meeting that also pointed the way to a trimming of the huge emergency funds pumped into the economy since 2009.
As widely expected, the Fed had raised interest rates a quarter percentage point to a target range of 1.0-1.25 per cent on Wednesday but it also gave its first clear outline on its plan to reduce its $4.2-trillion bond portfolio.
That undid all of the damage done to the greenback earlier in the day and pushed it higher as European traders got down to business on Thursday.
By 0806 GMT, the index which measures the dollar's broader strength was up 0.2 per cent at 97.145.
“Market expectations may have been more on the dovish side, the Fed did not confirm them - they kept the rate outlook very much stable, supported and they did not react on somewhat weaker data of late,” said Manuel Oliveri, currency strategist with Credit Agricole in London.
“Long-term Fed expectations remain very much supported - that is the main reason why the dollar is remaining supported for now.”
A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its September 19-20 policy meeting. The rest of them said it would make such a move at its December 12-13 meeting.
Deepening political turmoil in Washington did not seem to weigh on the greenback after the Washington Post reported that US President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.
Against its Japanese counterpart, the dollar rose 0.1 per cent to 109.57 yen, above Wednesday's eight-week low of 108.81 yen.
On Friday, the Bank of Japan is widely expected to keep its monetary policy unchanged, and reassure markets it will lag the Fed in tapering its massive stimulus programme, as Japan's inflation remains low despite a strengthening economy.
The euro was 0.3 per cent lower at $1.1191, down a full cent from a seven-month peak of $1.1296 scaled overnight.
The Australian dollar rose 0.2 per cent to $0.7599, moving back toward its 2-1/2-month high of $0.7636 hit on Wednesday, after a better-than-forecast employment report.
But the New Zealand dollar skidded 0.7 per cent to $0.7222 , moving away from the previous session's four-month high of $0.7319.
Data showed that New Zealand's economy grew 0.5 per cent in the three months to March, lower than the 0.7 per cent growth forecast in a Reuters poll and well below the central bank's forecast for 0.9 per cent growth.